There’s no question about the fact that cannabis is a growth market. Wordplay aside, the rapid rise of legal cannabis sales makes it one of the top industries for business opportunity, and an important vertical to consider. According to the 2020 Update to The State of Legal Cannabis Markets (SOLCM) report published by Arcview Market Research and BDS Analytics, sales grew 45.7% in 2019, reaching $14.9 billion in North America. As more states pass legislation legalizing marijuana for recreational and medical usage, these numbers are only going to continue to increase. Outside North America, legal medical cannabis shows a similar opportunity in the market, with spending more than doubling from $367 million to $840 million in 2019.
To accommodate these increases in business, cultivation facilities have expanded continually over the last five years, with 81% reporting in 2020 that they plan to add square footage to their cultivation sites, according to Cannabis Business Times’ 2020 State of the Industry Report.
Competition and Regulations Challenge Cannabis Business Owners
Yet at the same time, growers and dispensaries are facing a number of challenges to their business growth. Competition was cited as a top business-related obstacle among cultivators of cannabis in 2019, along with declining prices. Businesses are discovering that they must become more savvy marketers and improve operational efficiencies wherever possible in order to remain profitable and stay ahead of the competition.
Complicating matters is the regulatory landscape. This is to be expected for an industry that is built around a substance that is illegal under federal law; even in states where marijuana is legal, there are obstacles. For example, many banks will not work with cannabis businesses – they will not provide business loans or even permit them to open checking accounts. This can make it very difficult to manage their finances, pay taxes, invest in growth or even administer payroll.
Some states are beginning to take action to combat these issues. In California, the Cannabis Limited Charter Banking and Credit Union Law (State Senate Bill 51) would “provide for the licensure and regulation of cannabis limited charter banks and credit unions for the purpose of providing banking services, as defined, to cannabis businesses.” This helps, but it is only a beginning.
Another challenge caused by the inability to maintain business bank accounts is that customers who purchase cannabis products are often required to pay in cash. This can lead to the possibility of a dispensary’s underpaying of taxes – not to mention the fact that it is publicly known that there are large quantities of cash present on-site, creating a higher risk profile.
These issues make dispensaries and growers more vulnerable than many other businesses to a range of threats. Many states have recognized this reality, and as a result, cannabis operations are required in some states to create and implement comprehensive security plans detailing how they will secure their business. In some California cities, for example, cannabis dispensaries are required to submit security plans to the city police force for review and approval before they are permitted to open.
Stepping Up to the Security Challenge
There are a number of security requirements for cannabis cultivation centers and dispensaries, some mandatory and some simply good practice to minimize risk. Not surprisingly to anyone in the retail operations world, employee theft may be the biggest security threat faced by marijuana businesses. According to Marijuana Business Daily, approximately 90% of the financial and product losses in the cannabis industry can be attributed to this cause.
To address this vulnerability, perhaps the most important step to take is to limit access to the parts of the facility where cash and product in bulk are stored. The keys to these rooms or areas should be tightly controlled, ideally with an electronic key control system. This type of system locks each individual key safety away in the cabinet, where only an authorized user has the proper credentials to remove them for use. Both the removal from, and return to, the key cabinet is documented in the system with details including name of user, time and which key was used.
The supply chain can present an attractive soft target for criminals. Cash or highly valuable plants, edibles, oils, dabs, and concentrates being transported are vulnerable to theft. For vehicles traveling to and from a dispensary or cultivation center that carry money or product, it makes sense to deploy a fleet management system. This will put the business owner or manager in control of when the vehicles are deployed when they are returned and who is authorized to drive each individual car, truck, or van. The system can also restrict access to the vehicles to certain times of the day, and limit certain users to specific vehicles.
Dispensaries and growers should also implement secure storage of all of their cannabis products and accessories, along with cash and valuable business documents. Using an electronic locker system enables tracking of anyone who removes or replaces any item in the system. Users can get data and report on when any items were placed in or taken from a locker, along with the identity of the person who accessed the locker. Using an RFID-enabled system gives management additional data, including whether a specific asset is in the system, and if so, which locker it has been placed in.
A full security program for today’s cannabis business should include a number of additional strategies as well. These may include the use of networked video surveillance cameras to provide identification of individuals and video evidence for use in criminal or liability cases. Security entrances, mantraps and portals can control entry to the facility for employees as well as patrons. You may choose to employ security officers – in fact, some states’ regulations mandate this security tactic – in which case you should also put a guard-regulation system in place to ensure officers are fulfilling their contracts.
In a fast-growing business such as the cannabis industry, it’s important to stay on top of rapidly changing security requirements and regulations. Your security strategy should incorporate proven and easy-to-use methods to secure physical keys and to control access to your facilities. From the cultivation center to the dispensary, physical key management is an integral part of this comprehensive security plan.
About the author: Tim Purpura is the VP of Sales & Marketing for Morse Watchmans.
